Cloud Computing, Regulators & Efficiency

Banking regulators do not discourage outsourcing, and in many cases strongly encourage it, if a bank can obtain better services than it can provide internally and the bank maintains proper supervision over the outsourced vendor’s activities. In a speech to the 10th Annual Community Bankers Symposium in Chicago*, Comptroller of the Currency Thomas Curry stated, “Third-party service providers are important to all financial institutions, but they can be especially important to community banks.” He added, “[C]ommunity banks in particular often use outside contractors to leverage expertise and resources that they can’t support internally.” Curry advised that “any institution that supplements its own resources with outside providers needs to have risk management practices in place that are commensurate with that risk.” He further explained, “All of these risks are manageable, but . . . must be managed.”

Regulators also realize there are efficiencies to be gained with outsourcing. The FFIEC’s Outsourcing Technology Services Booklet**, which is part of the FFIEC’s IT Examination Handbook, states that outsourcing “typically enables an institution to offer its customers enhanced services without the various expenses involved in owning the required technology or maintaining the human capital required to deploy and operate it. In many situations, outsourcing offers the institution a cost effective alternative to in-house capabilities.” The FFIEC adds, “Outsourcing of technology-related services may improve quality, reduce costs, strengthen controls, and achieve any of the [following] objectives”:

• Gain operational or financial efficiencies;
• Increase management focus on core business functions;
• Refocus limited internal resources on core functions;
• Obtain specialized expertise;
• Increase availability of services;
• Accelerate delivery of products or services through new delivery channels;
• Increase ability to acquire and support current technology and avoid obsolescence; and
• Conserve capital for other business ventures.

Cloud computing provides banks the information technology resources that they need without having to buy the individual components and hire the people who can assemble all of those components and keep them running securely, reliably and efficiently. Choosing a cloud computing partner that works only with banks, that also has appropriate risk management processes, audits and regulatory exams, and that has substantial industry experience and knowledge, can be a very well-informed decision for your bank.